Macroeconomics textbook definitions flashcards

Production

The value of the goods and services produced in a given time period

GDP (Gross Domestic Product)

The total market value of the goods and services produced in a country in a year

Actual economic growth

An increase in real incomes or gross domestic product (GDP)

Potential economic growth

An increase in the productive capacity in a country

Productivity

Measured as the output per worker per hour worked

Real values

Values that have been adjusted to remove the effects of inflation

Nominal values

Values that have not been adjusted for changes in average prices

GNI (Gross National Income)

GDP plus net income paid into the country by other countries, for example interest and dividends

PPPs (Purchasing Power Parities)

When values are expressed in accordance with the amount that the currency will buy in the local economy

The public sector

The part of the economy controlled by the government

The Easterlin Paradox

The idea that happiness rises with average incomes, but only up to a point

Inflation

A sustained rise in the general price level (measured by a change in a weighted index of prices such as the CPI)

Disinflation

A fall in the rate of inflation - prices are rising more slowly than they have done in the past

Deflation

A fall in the general price level

Weights

Attached to the goods and services in the CPI to reflect the relative importance of the various items in the average shopping basket

Retail Price Index (RPI)

An index used to measure inflation that includes housing costs such as mortgage interest repayments

Demand-pull inflation

An increase in the general price level caused by increased consumption, investment, government spending or net exports

Cost-push inflation

An increase in the general price level caused by increased production costs, such as a rise in wages or a fall in the exchange rate

Money supply

The amount of spending power in an economy

The level of employment

The number of people in work

Employment rate

The number of people who have a job as a percentage of the working age population (16-64)

Labour force / currently active population

A measure of people of working age (16-64) who are willing and able to work

Unemployment

A situation in which someone is willing and available to work, but is not currently employed

Economic inactivity

Measures people without a job but who are not classed as unemployed because they have not been actively seeking work within the last 4 weeks and/or they are unable to start work within the next 2 weeks. This includes students

Level of unemployment

Number of people out of work

Labour force survey

A measure of unemployment calculated using surveys of those out of work in the last 4 weeks and ready to start in the next 2 weeks

Claimant count

A measure of unemployment using the number of claimants of JSA

Underemployment

A situation in which a worker is employed but wants to work more hours

Inactivity

A measure of people of working age who are either unwilling or unable to work

Real wage unemployment

A measure of people who are unwilling to work at the going wage rate (Classical view)

Demand-deficient unemployment / cyclical unemployment

Caused by a lack of aggregate demand in an economy such as during a recession (Keynsian view)

Structural unemployment

A measure of the workers who lose jobs in a declining industry and do not have the skills to work in other industries

Frictional Unemployment

Refers to people who are unemployed between jobs or beginning the search for a job after entering the workforce

Seasonal unemployment

Refers to people who are unemployed at certain times of the year

The balance of payments

A record of payments between one country and the rest of the world. It comprises the current, financial, and capital accounts

Current account

The current account records trade in goods, trade in services, investment income and current transfers

The balance of trade

The difference between the value of goods and services exported and the value of goods and services imported (exported minus imported)

Investment income

The reward for investments in other countries. It comprises interest, profit and dividends

Current transfers

The payment of money across international boundaries that has no corresponding output

Current account surplus

Where inflows on the current account of the balance of payments are greater than outflows

Current account deficit

Where outflows on the current account of the balance of payments are greater than the inflows

Aggregate demand

The total planned expenditure on goods and services produced in an economy over a period of time. AD = C+I+G+(X-M)

Aggregate supply

The total planned output of goods and services in an economy over a period of time

Disposable income

The income after tax (and other mandatory deductions)

Gross investment

The total amount of investment before any account is taken of depreciation of assets

Net investment

takes account of the fall in value of capital assets

Animal spirits

The forces that make markets move in large booms and busts, as people buy and sell impusively rather than calmly, using purely rational behaviour

Fiscal policy

The deliberate manipulation of government spending and taxation in order to influence the level of AD in the economy

LRAS

Shows the productive potential of firms when all factors are variable

Wealth

A stock concept which refers to the sum of all the assets in an economy

Income

A flow concept which refers to the value of income earned over a period of time

Wealth effect

The effect on incomes or spending when asset values change

Injections

Flows into the circular flow of income, comprising investment, government spending, and exports

Withdrawals

Flows out of the circular flow of income comprising savings, tax and imports

The multiplier ratio

The ratio of a change in equilibrium (RGDP) to the autonomous change (the injection) that brought it about

Marginal propensity to withdraw (MPW)

A measure of how much of any extra pound earned is saved, taxed, or spent on imports (MPW = MPS+MPT+MPM)

Marginal propensity to consume

A measure of how much of any extra pound earned is spent within the economy

Actual economic growth

An increase in real GDP

Potential economic growth

An increase in the productive capacity of an economy

Output gap

The difference between actual output and either the trend or potential output

Monetary policy

Decision-making using monetary instruments such as the interest rate or quantitative easing

Negative wealth effect

A reduction in wealth, which results in a reduction in consumption, and therefore a reduction in production and employment

Quantitative easing

The purchase of gilts (long-term loans) and other illiquid assets as a means of making credit easier to access

Quantitative tightening

A contractionary monetary policy applied by a central bank to decrease the amount of liquidity within the economy. One way of achieving this is by letting the Central Bank’s bond holdings mature each month without replacing them

Direct taxes

Taxes paid directly to the government by the taxpayer. They are usually imposed on income or wealth

Indirect taxes

Taxes that the taxpayer can pass on to someone else (e.g. the consumer.) They are usually taxes on expenditure

Stagflation

Situation where an economy is stagnant (not growing) and is also suffering from inflation

Resource crowding out

When resources are fully employed. An increase in government spending will be using resources that would otherwise be used by the private sector

Financial crowding out

When government borrowing causes an increase in interest rates (to attract buyers of government bonds) that result in a fall in private sector investment

Deregulation

The process of reducing government rules and restrictions on businesses

Infrastructure

The physical and organisational framework needed for an economy to operate efficiently. It includes roads, railways, power, water and the internet

Trade unions

Organisations of workers that exist to promote the welfare of their members

Phillips curve

An observation of a trade-off between unemployment and inflation

Trade-off

When one factor can only improve at the expense of another

Fiscal stance

The position that the government takes on fiscal policy